Businesses face burdens under new executive order regarding contracts with federal government

There is a new executive order from the White House that places a burden on companies that contract with the U.S. government.

Called the “Fair Pay and Safe Workplaces Executive Order,” it will go into effect in 2015. Businesses will have to list any labor and employment issues that may be of interest to the federal government company-wide or involving a subcontractor. If the government deems it serious enough, businesses could lose out on government contracts.

“It’s part of a pattern,” Jeff Belkin, co-leader in Alston & Bird’s Construction & Government Contracts practice group, said in an interview with InsideCounsel. A former Department of Justice trial attorney, Belkin explains there have been a series of labor-related, executive orders put into place by the federal government recently. But the Fair Pay and Safe Workplaces Executive Order is especially noteworthy among the orders.

“This … one is going to be a very difficult challenge for companies who do business with the government, to comply with,” Belkin said.

Prospective contractors need to disclose labor law violations from the past three years before they can get a contract. The 14 covered federal statutes and state laws include those on wage and hour, safety, health, collective bargaining, family and medical leave, and civil rights protections.

Belkin made a few suggestions on how companies can prepare for the regulations. Companies should make a list now of labor issues from the past three years involving both federal and state agencies, so they do not have to scramble around at the last minute to list these issues. They also need to keep the list up-to-date.

Companies may want to work through their industry associations as the formal regulation takes shape, so they can have input on its final language. As of now, there is no draft regulation.

In addition, some companies may want to find ways to come up with settlements that prevent them from having to report issues so those issues do not appear on a later list.

Companies which want to challenge the awarding of bids have an appeal process, known as a protest, in place. It can be made through the individual contracting officer or a hearing held through the Government Accountability Office. The employees who handle these appeals may become overburdened with the new executive order.

“I am certain there will be many protests in the first few years,” Belkin said.

This will be made worse because regulations will likely be unclear when it comes to disqualifications. There is also some discretion that will be given to a contracting officer. So far, the executive order does not have a lot of guidance, though it was suggested that a single violation may not make a business ineligible for a government contract. That would mean repeat violators are most vulnerable to being disqualified for contracts.

“They are really leaving it up to contracting officers’ discretion,” Belkin said about the executive order. “They’re supposed to come up with standards.”

Those who may appeal may be companies that lost out on a bid or rival companies that lost out on a bid.

One of the sectors that may be most likely to get disqualifications is construction, because they are often investigated by the Occupational Safety and Health Administration, the size of their contracts, the number of employees they hire and their frequent use of subcontractors.

Looking ahead, states like California, New York and Illinois may try to implement their own state version of the executive order, Belkin said.

In explaining the need for the executive order, the White House has said, “Every year tens of thousands of American workers are denied overtime wages, not hired or paid fairly because of their gender or age, or have their health and safety put at risk by corporations contracting with the federal government that cut corners.”

“Taxpayer dollars should not reward corporations that break the law, so … President Obama is cracking down on federal contractors who put workers’ safety and hard-earned pay at risk,” it added.

The Fair Pay and Safe Workplaces Executive Order will govern new federal procurement contracts valued at more than $500,000. The executive order will be implemented in stages during 2016. The U.S. Department of Labor estimates that there are some 24,000 businesses with federal contracts, employing about 28 million workers.

“The Department of Labor estimates that the overwhelming majority of companies with federal contracts have no federal workplace violations in the past three years,” the White House said in the statement. “Contractors who invest in their workers’ safety and maintain a fair and equitable workplace shouldn’t have to compete with contractors who offer low-ball bids—based on savings from skirting the law—and then ultimately deliver poorer performance to taxpayers.”